Why do transaction costs rise after terrorist attacks e.g. 9/11. Please be detailed. It would be appreciated?

Question

I am really concerned with private firms? Why do their transaction costs increase? Also, are increased transaction costs related to things like their insurance premiums increasing and increased freight costs that may result as a result of the attack? Please help, Col

Answer 1

I don't agree with the premiss, except for short-term disruption costs. After 7/7, for example, a number of people stopped using the tube for a while, so there were increased costs of congestion on the roads (e.g. slower delivery times) and a few people were psychologically hard hit (those suffering trauma had to be replaced, or counselled, or given time off on full pay etc), but by and large business costs were not much affected. Sales however were hard hit in some businesses due to the drop-off in tourist arrivals (espcially domestic tourists) in London which affected hotels, shops in oxford St, etc. (Go to http://www.holidaybreak.co.uk/holidaybreak/regulatorynews_item.jsp?ric=HBR.L&ref=5931 for example to see a report on the effecto n into-London tourism for one company.) Some businesses which had spent money on activities for the weekend of July 9-10 were particularly hit by losses.